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Thursday, November 3, 2011

18 Dividend Stocks With A Good Yield And Growth Balance

Growth or yield? In a perfect world, income investors would want both from their investments and are not interested in investments that offer neither. This is where the common ground ends, and the debate begins. Without the benefit of a perfect world, we are left with the middle ground which is a balancing act between growth and yield. How much yield are you willing to give up for growth at a certain level, and how much growth will you sacrifice for a higher yield?
Assuming known inputs, a model can easily be constructed that allows yield and growth to vary, but provide equal end-results (see D4L-PreScreen.xls). Unfortunately, in the real world there is no such thing as "known inputs" when projecting the future. Hence, risk is introduced to the equation.

Higher yield or growth brings with it a higher risk of sustainability. Most income investors wouldn't mind a stock that yielded 20% with no growth, or a stock with an initial yield of 0.5% growing at 100% per year. If either of these were offered to us, we would immediately know that neither are sustainable in the long-term.

Based on our individual financial makeup and appetite for risk, we will select an acceptable range of target yields and dividend growth rates. As a quick-and-dirty test when evaluating the yield/growth balance, I look for yields between 2.5% and 5.0% that when added to the stock's dividend growth rate it sums to a number greater than 12%.

This relationship provides for dividends that will double in a little over 10 years. It is far from precise and is not a substitute for running a spreadsheet model, but it does provide me a quick reasonableness check.

This week week, I screened my dividend growth stocks database for companies with dividend yield between 2.5% and 5.0% and a combined yield plus dividend growth of 12% or more. The results are presented below:

Colgate-Palmolive (CL)
Yield: 2.5% | Dividend Growth: 11.8%
Colgate-Palmolive Company (Colgate) is a major consumer products company that markets oral, personal and household care, and pet nutrition products in more than 200 countries and territories.

Air Products And Chemicals Inc. (APD)
Yield: 2.5% | Dividend Growth: 9.9%
Air Products and Chemicals Inc. is a major producer of industrial gases and electronics and specialty chemicals also has interests in environmental and energy-related businesses.

AFLAC Incorporated (AFL)
Yield: 2.7% | Dividend Growth: 15.0%
Aflac Incorporated provides supplemental health and life insurance in the U.S. and Japan. Products are marketed at work sites and help fill gaps in primary insurance coverage. Approximately 80% of earnings comes from Japan and 20% from the U.S.

McDonald's Corporation (MCD)
Yield: 2.7% | Dividend Growth: 15.0%
McDonald's Corporation is the largest fast-food restaurant company in the world, with about 32,900 restaurants in 117 countries.

General Dynamics (GD)
Yield: 2.8% | Dividend Growth: 10.8%
General Dynamics is the world's fifth largest military contractor and also one of the world's biggest makers of corporate jets.

The Clorox Company (CLX)
Yield: 3.5% | Dividend Growth: 9.1%
The Clorox Company is a diversified producer of household cleaning, grocery and specialty food products and is also a leading producer of natural personal care products.

ConocoPhillips Co. (COP)
Yield: 3.6% | Dividend Growth: 15.0%
ConocoPhillips Co. was formed via the 2002 merger of Phillips Petroleum and Conoco, is the fourth largest integrated oil company in the world.

Nucor Corporation (NUE)
Yield: 3.7% | Dividend Growth: 15.0%
Nucor Corporation is the largest minimill steelmaker in the U.S., and has one of the most diverse product lines of any steelmaker in the Americas.

Avista Corporation (AVA)
Yield: 4.2% | Dividend Growth: 8.8%
Avista Corp. generates, transmits and distributes energy as well as engages in energy-related businesses. The company operates in two business segments.

Lockheed Martin Corp. (LMT)
Yield: 4.3% | Dividend Growth: 17.9%
Lockheed Martin Corp. is the world's largest military weapons manufacturer, and is also a significant supplier to NASA and other non-defense government agencies. LMT receives about 93% of its revenues from global defense sales.

As with past screens, the data presented above is in its raw form. Some of the the companies would be disqualified for poor dividend fundamentals. However some of the others may be worth additional due diligence.

My database, D4L-Data, is an Open Office spreadsheet containing more than 20 columns of information on the 210+ companies that I track. The data is sortable and has built-in buttons and macros to make it easy to use. Companies included in the list are those that have had a history of dividend growth. The D4L-Data spreadsheet is a part of D4L-Premium Services and is updated each Saturday for subscribers.

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Material presented on Dividend Growth Stocks is for informational and entertainment purposes only and is the opinion of the author and should NOT be relied on or taken as investing advice. The information and content should not be construed as a recommendation to invest or trade in any type of security. Neither the information, nor any opinion expressed, constitutes a solicitation of the purchase or sale of any security or investment of any kind. Before acting on anything you read on this site, you must do your own research and you must come to your own conclusion which you will ultimately be responsible for, including any loss you may incur. [More]